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When does it makes sense to invest in a perfume?
(Part 2)

Read Part 1: The Market

Finding the right scale

Think like a merchant. Small amounts of money go out; larger amounts come in. You want the money going out to be the right amount needed to pay for the merchandise (perfume) that will be sold. If too much money goes out – more than is necessary – profit is diminished. Scale is important.

Perfumes, even the best of them, do not continue to sell forever. The sales curve has a beginning and an end and the weeks from start to finish can be few. You must plan your promotion around those weeks when your fragrance is hot. Don't get pulled down by putting money into the last days of the sales curve. At that point you will be putting in more than you will be getting out. The more accurately you can estimate how many units you can sell, the less spending waste you will incur.

Look at it this way. If you are likely to sell about 5,000 bottles of your perfume but you go overboard and produce 20,000 bottles, you end up with 15,000 unsold bottles. The cost to produce those 15,000 unsold bottles is a drain on your profit. This is important.

When you look for opportunities you must consider the sales potential in any market you might care to exploit. A market that might produce 1,500 very profitable sales – if you can produce just 1,500 bottles – will not look so good if you are intent, perhaps because vendors or investors are pushing you a bit, on producing 5,000 or even 10,000 bottles. In fact, if you are fixated on a high level of production you might totally overlook "small" markets that could be highly receptive to your offer... meaning your marketing costs would be quite low and your profit high... if you produce just the right amount of inventory.

Remember, while your cost per bottle can seem low if you calculate from a large number, the cost of unsold bottles must be added to the cost of the bottles sold.

For example, if you produce 20,000 bottles at a cost of $4.75 per bottle (total cost = $95,000) but only manage to sell 7,000 bottles, your true cost per bottle becomes $13.57 (95,000 / 7,000 = 13.57). The drag from your unsold bottles will almost certainly eliminate the profit you would have made had you produced closer to 7,000 bottles.

You may hate mathematics but, if you want to sell perfume profitably, you must get comfortable with basic arithmetic.

Next: Distribution...

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Philip Goutell
Lightyears, Inc.